U.S. DOL Updates Salary Thresholds for Overtime Exemptions

On April 23, 2024, the U.S. Department of Labor issued final regulations updating the minimum salary threshold for employees to be considered exempt from overtime requirements under the Fair Labor Standards Act. The regulations are scheduled to be published in the Federal Register on April 26, 2024. The new rules increase the minimum salary from the current level of $684 per week (about $35,568 per year) to $844 per week (about $43,888 per year) effective July 1, 2024, and $1,128 per week (about $58,656 per year) effective January 1, 2025. According to the final rule, $844 per week is the “20th percentile for weekly earnings of full-time nonhourly workers in the lowest-wage Census Region and/or retail industry nationally,” and $1,128 per week is the 35th percentile. Beginning July 1, 2027 and every three years thereafter, the salary level would be readjusted to reflect updated earnings data.

Under current regulations, certain highly compensated employees who perform office or non-manual work and are paid total annual compensation of $107,432 or more (which must include at least $684 per week paid on a salary or fee basis) are exempt if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption. Under the new regulations, that threshold will increase to $132,964 effective July 1, 2024, $151,164 effective January 1, 2025, with further updates on July 1, 2027 and every three years thereafter. (Notably, this exemption for highly compensated employees is not recognized under state law in some states, including Illinois.)

As followers of this issue may be aware, the Department of Labor under the Obama administration previously attempted to increase the minimum salary threshold for overtime exemptions in 2016, from $455 per week to $913 per week. That proposed regulation was struck down in 2017 by a federal district court in Texas before it could take effect. In 2019, the salary level was updated to the current amount of $684 per week.

It is highly likely that opponents will sue to block the new rules, as occurred with the 2016 regulations. Challenges to the regulations may go even further than they did in 2016, asking courts to reject any use of a minimum salary threshold to determine whether a worker can be classified as a bona fide executive, administrative, or professional employee.

Employers with overtime-exempt workers earning less than $844 per week should start planning changes to comply with the new rule effective July 1, 2024, either by increasing salaries or paying overtime to affected employees. However, given the likely legal challenges, employers may wish to wait and monitor the situation before implementing any major changes.